Industry

After 1987 problems that had confronted industry earlier in the
decade intensified, adverse macroeconomic conditions persisted, and
political troubles affected expectations adversely. Until the end of the
1980s, industry relied heavily on government protection and favors, but
it also faced pervasive regulations and extensive governmental
interference. These factors had a deleterious effect on industrial
investment and on the productivity of several industrial subsectors,
increasingly blunting the competitive edge they had struggled to achieve
in the world market. Moreover, as a result of the fiscal crisis, the
government was hard-pressed to continue to provide support and subsidies
for industry and to maintain and expand the country's infrastructure.

The Collor de Mello administration, inaugurated in 1990, introduced
significant changes in Brazil's economic strategy. Regarding industry,
the government implemented measures to eliminate regulations, to
liberalize trade, and to markedly reduce governmental favors and
subsidies. It also announced a series of actions aimed at increasing
industry's competitiveness. Despite these efforts, political and
macroeconomic difficulties prevented the effective implementation of the
new strategy, and the mounting fiscal crisis dampened efforts to rebuild
and improve the badly deteriorated infrastructure. Therefore, an
important part of the industrial sector failed to recover and to
modernize. With stagnation, the domestic market could not give industry
a dynamic push. Moreover, the reduction in investment, coupled with the
deteriorating infrastructure, led to declines in competitiveness. These
developments, together with fewer import barriers, caused industry's
balance of trade to decline, from a peak of US$16.3 billion in 1988 to
US$11.1 billion in 1991. In the early 1990s, despite sectoral
weaknesses, the industrial sector became a major contributor to the
country's exports and trade surplus.